The Central Board of Direct Taxes (CBDT) has announced relief for taxpayers who were unexpectedly faced with revised tax demands following corrections in the Section 87A rebate. Due to system errors, some taxpayers had earlier received refunds or lower tax liabilities on incomes not eligible for the rebate. To mitigate the financial impact, CBDT has waived interest on such revised demands if payments are made by December 31, 2025.
Rebate under Section 87A of the Income Tax Act
- Under the current rule, Taxpayers with a total income up to ₹7 lakh can claim a rebate that reduces their tax liability to zero. This applies only to income taxed under normal slab rates; special-rate incomes, such as short-term/long-term capital gains, lottery winnings, or other specified categories, do not qualify. Provides relief to small taxpayers by lowering or eliminating tax liability for modest incomes.
- Due to technical glitches and incorrect assessment, the Section 87A rebate was mistakenly applied to some special-rate incomes. Subsequent corrections led to fresh tax demands, alarming taxpayers who had previously received refunds or lower dues.
CBDT’s Relief Action
- The circular has been issued by CBDT, granting conditional relief under Section 119, acknowledging the hardship.
- The taxpayer who clears their revised dues on or before December 31, 2025, will not attract interest under Section 220(2)
- Payment made after December 31 2025, will attract interest from the original due date until settlement.
- This effectively gives Taxpayer a three-month window to settle dues without additional financial burden
Understanding Section 220(2)
- Normally, Section 220(2) mandates interest on delayed tax payments, accruing from 30 days after the demand notice until settlement.
- In this case, CBDT has conditionally suspended interest, recognising that the revised demands were due to technical errors, not taxpayer default.
Conclusion
CBDT’s move strikes a balance between compliance and fairness. Taxpayers must pay the corrected tax liability, but no interest will be charged if dues are cleared by December 31, 2025. The waiver offers timely relief to small taxpayers who might otherwise face unexpected financial strain. Affected individuals are advised to review their revised tax notices carefully and settle dues within the deadline to avoid additional charges.
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